http://www.mlive.com/business/west-michigan/index.ssf/2010/05/fremont_insurance_moves_toward.html
FREMONT — Publicly traded Fremont Insurance Co. is taking steps to buy Northern Mutual Insurance Co., based in the Upper Peninsula town of Hancock.
The two companies, both established in the late 1800s, announced a “letter of intent” this week, the first step toward that purchase. Because Northern Mutual is owned by the policy holders, it must first “demutualize” and convert to a stock insurer, after which Fremont would purchase all of Northern’s stock.
“It’s in the very preliminary stages right now,” said Jeff Tryka, a spokesman for Fremont. “Eventually it would mean that Northern would be part of Fremont.”
Fremont, whose holding company is Fremont Michigan InsuraCorp Inc., provides property and casualty insurance to individuals, small businesses and farms only in Michigan. At the end of last year, it had $55.6 million in net written premiums and $89.4 million in total assets, according to the announcement.
Northern provides property and casualty insurance to individuals only in Michigan. Last year, it had net written premiums of $8.9 million and total assets of $23.7 million.
Under the plan, Northern would remain a separate entity, maintaining its name, current operations and employees, Tryka said.
“They are a very strong company in Michigan,” he said.
The deal is contingent on the state Office of Financial and Insurance Regulation approving Northern’s stock conversion plan and Fremont’s stock acquisition. A conversion plan has yet to be filed with the office, according to a statement.
Gerard Quello, manager of Northern Mutual, declined to comment on the announcement. Tryka stressed the deal is a “friendly” and agreed upon by both companies.
“Unlike some recent transactions, this is a completely friendly deal,” Tryka said. “We think its in the best interest of both companies, our policy holders, our agents and the communities.”
Tryka was referring to a recent hostile takeover attempt by parent of Steak ‘N Shake restaurants, Biglari Holdings Inc. That effort led company leaders to push for a new state law that prevents a takeover unless two-third of shareholders approve. It was signed by the governor last month.
What struck me about the proposed merger, was that this move was likely to have been driven by the board to further squash the Biglari Holdings takeover attempt. For one, the enlarged Fremont Michigan/Northern Mutual entity would be significantly more difficult for Biglari Holdings to consume. Secondly, while Northern Mutual is smaller than Fremont, it may not be sufficiently small enough that Fremont Michigan could acquire it easily from cash on hand. If a cash purchase is off the table, then the acquisition is most likely to be funded with the issuance of stock. The added benefit of such a purchase would further solidify the Michigan shareholder base, a base that is likely to be more pro-current management, than pro-Biglari Holdings. With the new state law that prevents Fremont Michigan from being taken over with less that a two-third majority; any remote possibility of Biglari pulling in enough votes for a takeover has surely disappeared.
On the merger itself, it’s not easy for Fremont Michigan stockholders to assess whether the deal is likely to be in their best interests, or not. As the two companies are relatively small, there is bound to be cost savings from the removal of duplicate fixed expenditures (accounting, legal, listing and corporate costs, etc.). Also, while it’s not guaranteed, you would expect that a company that’s been around since the 1800′s won’t be going out of business anytime soon. Some of that concern can be taken off the table, as Northern Mutual has been assigned an A- rating (the same as Fremont Michigan, who have a very solid balance sheet) from A.M. Best. Investors will only truly be able to assess the situation when Northern Mutual eventually de-mutualize and open up their balance sheet to public eyes.
